Financing A Business Is Risky

A Twitter listener asks how you finance a business you want to buy. Dave tells the listener he doesn’t recommend borrowing money to run a business, but he might consider owner financing.

QUESTION: A Twitter listener asks how you finance a business you want to buy. Dave tells the Twitter listener he doesn’t recommend borrowing money to run a business, but he might consider owner financing.

ANSWER: I don’t borrow money, and when you borrow money to do business, you add a huge level of risk to it, so I can’t recommend you do that. The only thing I would consider doing that would lower your risk would be an owner finance deal where the owner of the business finances it and your pay to them is based on the profitability of the business. Then, if there’s no profitability, you’re not bankrupted. But if you go pay $500,000 or $1,500,000 for something and get a loan for that, and then you can’t make those payments because the business doesn’t do well, you’re bankrupt. There really is no in-between. When you do business deals that are all or nothing—meaning if it doesn’t work, you’re bankrupt—you’re stupid. There’s no point in taking risk that high to live your dreams. It is not necessary.

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